Office of Planning, Environment, & Realty (HEP)
Good afternoon or good morning to those of you to the West. Welcome to the Talking Freight Seminar Series. My name is Jennifer Symoun and I will moderate today's seminar. Today's topic is Freight & Carbon Footprint: Efforts to Enhance Supply Chain Sustainability. Please be advised that today's seminar is being recorded.
Before I go any further, I do want to let those of you who are calling into the teleconference for the audio know that you need to mute your computer speakers or else you will be hearing your audio over the computer as well. I'm also going to bring up a poll to get an idea of how many of you are using the voice over IP option versus how many are using the teleconference option.
Today we'll have three presenters, Lee Kindberg of Maersk North America, Mike Zachary of Parsons Brinckerhoff, and Diego Klabjan of Northwestern University. Lee Kindberg is Environmental Director for Maersk North America, where she is responsible for environmental policies and programs, HSE compliance assurance and pandemic flu preparedness. She is active in Business for Social Responsibility's Clean Cargo Working Group, a global group dedicated to assessing and improving the environmental impact of shipping and responsible corporate citizenship. Other recent activities included the advisory panel for The Climate Registry.
Mike Zachary is a principal consultant at PB with extensive experience in global infrastructure, strategic consulting and maritime goods movement. He is currently actively engaged in mapping freight's carbon footprint on the supply chain as an active member of TRB's Freight Planning and Logistics Committee (Past Chairman), AT015 and the impact on not only the shipper, but the regional and State level planning organization and the associated modes of transport and distribution affected by legislation and regulatory constraints on freight as a result.
Diego Klabjan is an associate professor at Northwestern University, Department of Industrial Engineering and Management Sciences and Kellogg School of Management. In 1999, Professor Klabjan obtained his doctorate from the School of Industrial and Systems Engineering of the Georgia Institute of Technology. In the same year he joined the University of Illinois at Urbana-Champaign, and in 2007 became an associate professor at Northwestern. He is the recipient of the first prize of the 2000 Transportation Science Dissertation Award. His research is focused on business intelligence and analytics related to sustainable transportation.
I'd now like to go over a few logistical details prior to starting the seminar. Today's seminar will last 90 minutes, with 60 minutes allocated for the speakers, and the final 30 minutes for audience Question and Answer. If during the presentations you think of a question, you can type it into the chat area. Please make sure you send your question to "Everyone" and indicate which presenter your question is for. Presenters will be unable to answer your questions during their presentations, but I will start off the question and answer session with the questions typed into the chat box. Once we get through all of the questions that have been typed in, the Operator will give you instructions on how to ask a question over the phone. If you think of a question after the seminar, you can send it to the presenters directly, or I encourage you to use the Freight Planning LISTSERV. If you have not already joined the LISTSERV, the web address at which you can register is provided on the slide on your screen.
Finally, I would like to remind you that this session is being recorded. A file containing the audio and the visual portion of this seminar will be posted to the Talking Freight Web site within the next week. We encourage you to direct others in your office that may have not been able to attend this seminar to access the recorded seminar.
The PowerPoint presentations used during the seminar are available for download from the file download box in the lower right corner of your screen. The presentations will also be available online within the next week. I will notify all attendees of the availability of the PowerPoints, the recording, and a transcript of this seminar.
One final note: Talking Freight seminars are now eligible for 1.5 certification maintenance credits for AICP members. In order to obtain credit for today's seminar, you must have logged in with your first and last name or if you are attending with a group of people you must type your first and last name into the chat box. I have included more detailed instructions in the file share box on how to obtain your credits after the seminar. Please also download the evaluation form from the file share box and submit this form to me after you have filled it out.
We're now going to go ahead and get started. Today's topic, for those of you who just joined us, is Freight & Carbon Footprint: Efforts to Enhance Supply Chain Sustainability. Our first presenter will be Lee Kindberg of Maersk North America.
As a reminder, if you have questions during the presentation please type them into the chat box and they will be answered in the last 30 minutes of the seminar.
This is Lee Kindberg; I am with Maersk North America. I have been asked to talk to you about freight and the carbon footprint as well as some of the things to enhance supply chain sustainability. This is just a little background on our company. We are part of that company headquartered in Copenhagen, Demark. In North America we have U.S.-flagged ships and international vessels, terminals, trucking, warehousing and distribution and global logistics services. Maersk Line is our container shipping operation. We do have over 470 container vessels worldwide. These containers are either 20 or 40 feet long, and a 40-foot container is about the size of a city bus. About 90% of all goods transported globally are done by ship. We are about 4% of worldwide shipping activities and 16% of the container segment.
Those vessels consume over 10 million-tons of heavy fuel oil annually, so that means our carbon footprint is well over 30 million tons a year. This is something we are concerned about and working to do something about. Burning those hydrocarbon fuels creates a lot of emissions -- about 3.1 tons of CO2 per ton of fuel we burn, plus particulate matter and nitrogen oxides, black carbon and a few other things.
Let's step back a little and think about how ocean shipping works. This is how most of these goods come into our country. If you look at the maps I have shown you here, this is our "Transpacific 6" route. We have vessels leaving Tanjung Pelepas near Singapore, going to Hong Kong and then over to Los Angeles. When they leave Los Angeles they don't go back to Hong Kong or Singapore, they go up to Japan, down the coast of China and back around then to Hong Kong and Singapore. It's a big loop. That loop takes several weeks, which means to provide a regular weekly service we have to have that number of vessels. Let's look at one of the individual vessels, here's the Georg Maersk on the Transpacific 6 route. As you can see, it last called Los Angeles April 30 and was in Los Angeles just a few days, three days, to load and unload, then went to Japan, China, Hong Kong, back down to Singapore, through the Suez Canal to Spain, around the Mediterranean and all the way back to Los Angeles.
That whole trip takes about 14 weeks, so there are 14 vessels on this, what we call a "string" of ships. So of course, having that many vessels has a significant impact on the environment, but we are actually working, both as a company and within the industry to try to do something about it. The vessels are becoming more energy efficient and reducing emission. This is due to technologies, operations, the speeds we operate at, and the vessel sizes as there definitely are economies of scale. As you can see by the chart there on the slide, since 2002 we reduced our CO2 emissions per container per kilometer by 20% and set a goal of an additional reduction of 25% by 2020.
Reducing the amount of fuel you burn reduces CO2, and also reduces these other emissions. For example the NOx emissions are also down. I know that is something of concern to all of you involved in planning because many areas around the country, particularly port areas are in non-attainment status. A large and increasing number of vessels were built after the year 2000 and so are certified to the International Maritime Organization's NOx standard. There are also new standards coming in for fuel and NOx performance for the big vessels. Those are set internationally.
We have been doing fuel switching on the West Coast for four years now, it's over 1600 port calls since March of 2006. That fuel switching to a distillate fuel instead of the heavy fuel oil actually reduces our sulfur oxide emissions by 95%, particulate matter emission by 86% and the NOx emissions by 6% to 12% depending on the vessels. In California we did that voluntarily for three years, it's now become mandatory in California. We also do it at dock in Washington and British Columbia, since the first week of August we have been doing it in Houston and we started the first week of September in Hong Kong.
Fuel switching is a means that companies can take to dramatically improve our criteria pollutant air emissions. It doesn't do a lot for carbon dioxide. Let's look at some other things we are doing to reduce the carbon dioxide emissions. One thing is that operational decisions have a big impact. Fuel use and costs increase exponentially at higher speeds. So just like cars and trucks get better mileage at lower speeds, so do vessels. For us it's slower than the cars and trucks. As you can see there, the curve gets fairly steep above 15 knots. So speeding up uses more fuel than is saved by slowing down. If we speed up by two knots, say from 22 to 24 knots, we use an extra 60 metric tons. If we slow down by two knots, we only save 40 metric tons, so the lowest constant speed is best, speeding up and slowing down to meet different speed limits in areas actually can cause increases in greenhouse gas emission and fuel use.
If you want to look at an optimal point, the lowest fuel use and lowest cost is around 14 or 15 knots, literally 16 miles per hour. This is something slower than some of the fast sailing ships of 100 years ago.
Now, to enact something like that, which we have been doing, you have to redesign the routes. You can't just take your foot off the accelerator. Remember, we are trying to make the weekly calls. Every Tuesday the ship leaves Hong Kong and every Sunday afternoon a ship pulls into Los Angeles. Here are two schedules. A typical 2007 schedule on the left with 12 vessels shows a fuel consumption of 12,000 metric tons. A new economical speed where we have added a 13th vessel to slow down the whole string would use about 10,000 metric tons for the entire group of vessels. That's a 16% savings on fuel. It reduces costs and emissions of CO2 and the criteria pollutants. This is something we have now enacted on about half the containers that we ship.
It wasn't just a matter of taking the foot off the accelerator. We worked with the engine manufacturers. These manufacturers were recommending an engine load of 40% to 60%. So we started a study in 2007 covering 110 different vessels. That study showed it was actually okay long-term to operate down as far as 10% engine load, about half speed. Remember the water carries a lot of our weight, so 10% engine load is roughly half speed, but it is a much lower emissions range to operate in. By doing that we've actually increased our voyage flexibility and schedule planning and increased schedule reliability. Schedule reliability is probably the number one most important criterion for customers. They want to know they will get their freight on time. We are able to meet those dates with higher reliability, still save between 10% and 30% fuel and reduce CO2 emissions by 10% to 30% and criteria pollutants. There is a significant cost savings for this, and that helps pay for some of the other projects we are working on that are not "free." For this particular initiative and some of the other things we are doing, we were selected for the 2009 Sustainable Shipping Operator of the Year.
Sometimes you have to re-tune the engines to get them to optimize out at a slightly lower speed level. That's been done on many of our vessels. Technical innovation is also essential for sustainability. It goes from things like an ISO 14001 management system and crew training and engagement, which by the way had good effect, up to more exotic things like micro bubbles forced out through tiny holes through the hull, reducing the drag, or ballast water optimization and treatment systems, and alternative fuels. We are looking at all kinds of other things and are implementing them on our vessels, some with retrofit, some have to be put in when we build a new vessel -- like the waste heat recovery systems.
Let's talk more about the supply chains. Ocean shipping is the most energy efficient mode of transportation. Of course, it also doesn't clog highways or contribute to highway congestion. Let's take one pair of shoes being shipped from China to Northern Europe. Of course these will be in a big container with lots of other pairs of shoes. If you divide it out to see what that pair of shoes' contribution is in greenhouse gasses, it is about 372 grams of CO2 per pair of shoes. A gram is about the weight of a paper clip. What happens when that consumer in London buys the shoes and drives home just 12 miles from the store? They generate 10 times as much CO2 or 3700-grams of CO2. I might mention that is unless you buy more pairs of shoes each time you go to the store. That is what I tell my husband anyway, but it's true of our businesses too. With better planning of routes and combining trips we can reduce carbon footprints while barely impacting our businesses.
Shipping emits around 4% of the world's man-made CO2 emissions while transporting 90% of the world's goods. Here's how the different modes of transportation stack up. As you can see ocean shipping is the most energy efficient, at the bottom of the chart, followed by rail that's electric or diesel. Trucking is about five times less efficient and air freight, the most inefficient way because you have stay in the air as well as move the goods forward. So, ocean shipping is the most energy effective way to move freight. Let's see what this translates into.
Here are the factors determining supply chain carbon footprint. We have been working closely with industry associations and customers to determine how to do these things effectively. First item is the mode of transportation and the energy efficiency of the mode and the routing available. It doesn't help if you are more energy efficient if you have to go five times as far to make the trip. There's the distance traveled by each mode, the cargo or container weight in volume, and how you calculate, measure, and report these things. The World Resources Institute has a distance-based protocol for calculating supply chain carbon footprint. There is software for doing these calculations and carrier-specific tools like Carbon Check and Carbon Dashboard, which are some of the tools available within my own company, and others from other carriers. The Clean Cargo Working Group is the industry group I mentioned that has added definition and collects data for the vessel side and other groups focus on other modes, like SmartWay that focuses on the trucking transportation.
Here is the Clean Cargo Working Group. We have been in existence since about 2001 and collecting data since 2004. The data is put in the form of emissions factors to enable our shipper members and liner companies to actually do these carbon calculations in a consistent manner so trade routes can be compared. We do an annual benchmarking of the member lines' environmental performances and that has resulted in increased focus and reducing environmental footprint, increased motivation to do that. We have an intermodal calculator that allows a consistent way of calculating these things.
I might mention, by the way, the website to get more information about Clean Cargo is up there under the title (http://www.bsr.org/consulting/working-groups/clean-cargo.cfm). Clean Cargo does put out an environmental performance scorecard. This is a simplified version of it, the summary sheet. We look at carbon dioxide and criteria pollutants as well as other factors like environmental management systems, transparency, we look at chemicals used. At the bottom you see we have a detailed carbon performance factor for each trade lane and this goes down quite a ways, so for every trade lane between Asia and North Europe or Asia and North America for both dry and refrigerated containers there's a defined emissions factor for CO2 based on actual data. These things are updated every year by Clean Cargo.
When we put that into practice, let's make a comparison of shipping a container of sporting apparel from Istanbul to Belgium. If you go across Europe by truck you generate about 1300-kilograms of CO2. However, if you go by truck to the port, put the cargo on a ship, go all the way out through Gibraltar and to the port in Belgium and then drive to the distribution center, you generate 980-kilograms of CO2. The bar chart on the left shows that when you add up all the pieces you can actually reduce the carbon footprint of this total chain by about 21%. It also does, by the way, increase the time required to get it there.
We do have internal tools. This is a slide I show courtesy of Nike and our sister company, Damco a logistics company. They did a case study on work that both Maersk Line and Damco did with Nike to optimize their supply chain and reduce the carbon footprint. This visibility of the supply chain carbon footprint is helping Nike accomplish their goal of a 30% reduction by 2020. By shifting some goods from air freight to ocean; they were able to reduce their carbon footprint by 12% last year. There's a complete case study posted on the Damco website (http://www.damco.com), there on the right side.
This is extracted from another case study at damco.com. There are several projects with Boots, a leading pharmaceutical and beauty store in the U.K. Since 2004, focus on these analyses has enabled Boots to reducing emissions 29% and logistics costs by 21%. It's a win/win proposition if you do it right.
So let me just summarize what we've learned through this process. First, it's really important to use a consistent calculator approach. It is best if it's agreed upon by the whole industry. Clean Cargo Working Group is working with the ocean industry similarly how SmartWay does trucks. There are groups with similar data collection processes so you are working with real data. Transportation footprints can and have been reduced. We have to keep in mind that it's the total lifecycle footprint that matters. Transportation is often only a small part of the total -- I've seen numbers anywhere from 5% to 25% or higher for the total supply chain footprint that's related to the transportation. "Near-sourcing" doesn't necessarily always make the greatest amount of sense. You have to do the full analysis to really see the big picture. If you focus on improvements and actually incorporate the carbon impact into business decisions, you can actually make real progress on both and perhaps also improve your business. The opportunity is to reduce both CO2 emissions and costs. My contact information is provided here on the last slide. I will turn it back over to you, Jennifer.
Thank you, Lee, and to those who posted questions. We will get to the questions after the other presentations. I am now going to turn it over to Mike Zachary of Parsons Brinckerhoff.
Thank you. I think the key point that Lee had was on her last slide and it said that tracking and measuring the carbon footprint of freight needs to be done in a systematic approach. I will talk today about some of the shippers responsibilities and the modes of transportation the shipper has to address in evaluating their supply chain. They are not just in it for social responsibility; they are in it basically because they have to have an efficient supply chain that makes money. As Lee mentioned, and Diego definitely will, we need to reduce 80% of total emissions. As Lee pointed out, other than air, trucking is probably the worst offender, especially on a per-container or per ton basis.
All the nodes of a supply chain and all the modal components of the supply chain want to be part of the solution, not part of the problem. So, when we take a look at potential solutions, Lee mentioned metrics and the need for defining both the metrics and the approval process associated with obtaining those metrics. In January's TRB conference it was indicated that freight was 28% of transportation's greenhouse gas producers, of which transportation was 28% of the total GHG emissions, which you see that number now has gone up in recent studies to 29%. You can see light duty vehicles, freight trucks, aircraft fall into that "transportation" category. One problem we have, and we are going to continue to have, is defining "freight"; for example is UPS, DHL, FedEx, and other packaged deliveries, considered freight or is freight just 18-wheelers going to and from distribution facilities or stores. Part of that definition, as we mentioned, is the measurement (metrics) component of freight emissions and what does that mean to the shipper, and the MPO's?
How can freight emissions be reduced? There are many aspects of this topic and. Lee touched on many of them so, I won't go into a lot of detail, but the bottom point is that logistics providers, ocean carriers, shippers, railroads and trucking lines are getting involved and looking at the distribution networks, in a complete systems approach (including how much reverse haul, empty backhaul) and how they can each be a party to the solution. What are the modal options open to a shipper or their logistics service provider? Lee had a great display on the European trucking versus ocean. In most cases, it is not as simple as one may think. Does the rail component use double stack trains? How can we eliminate truck bottlenecks? For example, both the Houston and Dallas MPO's are working on truck bypass routes to get trucks out of the congested areas. This may add more miles but they wouldn't be stopping and could travel at a more efficient speed thus reducing their emission footprint.
When we take a look from an MPO, Metropolitan Planning Organization, planning perspective or State DOT planning perspective, I think in all goods movements studies understanding the supply chain is absolutely critical. What's the routing? Why are shippers using one mode over another mode in their supply chain? Do they need to go through downtown Houston or can they go around? As Lee mentioned, models exist and are being developed to measure and analyze the global greenhouse gas effect, in terms of what each mode contributes to total footprint. The issue is then how does one analyze and take the results and plan infrastructure and policy improvements? I am not going to start talking about a need for policy at this point in time but you will hear me mention the need for policy several times as we do not have agreed upon standards, nor we are not playing on a level playing field with the rest of the world and this results from a lack of, a federal freight strategy and policy statement.
If you take different perspectives from the transportation components of the supply chain, you have the, shippers; the different transportation modes and the various "nodes" such as a terminal or port and then you have the effect of component on the regions in which they operate.
So, from a shipper or beneficial cargo owners perspective, what do they want in a supply chain? From a total systems perspective, the supply chain has to have reliability. As Lee mentioned, she has 14 vessels for a 14-week deployment, resulting in a weekly call. If one of those weekly calls gets delayed a week the entire supply chain gets screwed up. It must be reliable. It also must have efficiency of cost. It has to have cargo density and balance. For intermodal rail, it means for every full train leaving a terminal it would be nice to have the same time amount of containers coming back full. Thus east and westbound movements should be balanced, and not necessarily with empties. As a shipper, I am looking for redundant and contingent supply chains. A perfect example was Katrina where Gulf ports were closed down. If that was my only supply chain entry into the United States, I was not a happy camper as my supply chain came to a complete stop. A lot of shippers now are looking at redundant ports and modes of transporting their goods to market. The Panama Canal plays a large role into this analysis. What social responsibility can the shipper afford as part of the analysis? Most shippers say they want to play, want to be socially responsible, but what is the cost? Why should we focus on supply chains versus one or two components of the supply chain? Well, that's the way the system works. Decisions are made in a global context, with multiple jurisdictions, on sourcing, manufacturing, assembly, distribution and transport. Lee mentioned the complex lifecycle of the ocean carrier is definitely global. You will hear time and again today, that the supply chain is ever-changing. The sourcing and distribution patterns many times go by the will of the winds and most of the time, by the components of cost. A lot of the costs directly applicable to the supply chain are a result of legislative policy or rule mitigations that come about in terms of air quality attainment and a policy called "Cap and Trade". I will talk specifically more about cap and trade. You have these different components, bubbles, with different costs and strategies in which each component affects the other components.
There is no such thing as acting locally without a global impact potential. This was documented from a recent study we did for a MPO. For instance, if you look at US apparel import value and the market share of the sourcing nation, there are the different countries from which we're getting apparel. In the late 1990s, Mexico was the leading importer. In 2009, China is the largest source of apparel with Indonesia, Vietnam, and India increasing their market share. This gives a good indication that the source is changing and if you are going to look at this component from a shipper's perspective, it will affect my decisions on the entire supply chain. The next example without naming names is a large shipper that built a distribution facility in the Houston area. When it came online, about 2004, you can see there was a significant increase in the amount of furniture that came into the Houston area; but that the apparel component didn't change that much. Thus a decision by a major shipper or distributor, logistic service provider does have an impact in terms of what cargo a region or gateway will see.
You will see changes forthcoming due to the Panama Canal expansion. We are involved with MARAD and a couple of other agencies, looking at the effect of the Panama Canal, and where cargo will flow, how it will flow and the impact the expansion will have on US ports on the West, Gulf, and East Coast. New inland transportation corridors are now developing to handle containerized cargo which is significantly changing the landscape of distribution patterns. Quite frankly, the intermodal mentality of Western railroads is being adopted by the Eastern railroads. That's not a dig; they just haven't had to have that mentality of operations in the past. I will give an example. I was the Director of Port Planning and Logistics for the Port of Tacoma for five years. When we had a vessel call, we unloaded and loaded out three full unit trains from one terminal from that one vessel call. In Charleston, Savannah, some of the Gulf Coast ports; they will, based on the current intermodal mix, only unload and load one train a week. That's not density and in some instances, in order to achieve density, several of those trains get reassembled in Atlanta. What a railroad is looking for and the ports and the steamship companies want to provide, is the economy of scale and the density by cranking out a unit train per vessel call. Again, this goes back to some of Lee's points about efficiency of mode.
What are some of the factors that affect the shipper's decision criteria? Obviously cost, reliability and density. However, more importantly, it's the uniform applicability and enforcement of policies that affect cost, reliability and density. If a carrier or shipper has the alternative, as Lee mentioned, in terms of routing, they can and will choose the routing with the least amount of potential for impacts on their supply chain. For example, I can go to the Houston/Dallas area via the Panama Canal in 24 days, or I can go via intermodal rail through the California ports and it will only take 20 days. In the Canal option, I may lose four days of time, but I may save on my carbon emissions and I may save on cost. However, as I previously mentioned, I may choose both routings in order to have redundancy, and call at both ports or put a lot of product in one port, one distribution chain.
Let's switch over from the BCO perspective to the MPO perspective. This is a new phenomena coming about in terms of a "mega-region" and how they coordinate freight within their mega-region. As a point of reference, currently 66% of all international trade is handled within mega-regions. Also, 77% of all domestic trade occurs within the mega-regions. Of that figure, 60% is moved by truck within a mega-region and 4% is moved by rail.
The second bullet is the key. There's going to be a tremendous amount of increased cargo movements as the mega-regions continue to grow. By 2035 there will be 85% increase for export goods and a 76% increase in import goods within mega-regions. We are working for several of those mega-regions MPOs and there is no national policy, no standard as to how a shipper can plan on a supply chain using or going through or locating distribution manufacturing within those mega-regions. Not to pick on the ports of LA/Long Beach, but here is a good example. Southern California ports have established a truck licensing program. I applaud it as it is a great program, but it's going to add cost. The shipper has to make a decision whether that cost to go through LA/Long Beach is part of their social responsibility or, can they save a couple hundred bucks and go through Houston or go through Seattle/Tacoma. The rest of the ports on the West Coast and the Gulf Coast are not following the same trucking regulatory issues as t LA are Long Beach. Right now that's not a level playing field.
Now, let's look at the federal climate policies. We have a bunch of different policies ranging from cap and trade, energy bills, transportation reauthorization and what strings come attached with that and stimulus funding for climate initiatives. All of these and others I have failed to mention will have an effect on trade and goods movement within a region. Specifically, US cap and trade legislation right now doesn't do much, quite frankly, for the shipper. The shipper is looking at the entire supply chain and. right now the cap and trade in the United States is focused on the "point source" of emissions such as the manufacturing facility or the fossil fuel plant. If cap and trade can be made to be more global along the supply chain, then you are going to get a lot more information and a lot more participation by the several supply chain participants. An example: if I am shipper X and I use a Maersk vessel, although my manufacturing facility in China is in a debit situation, because I am using Maersk's new efficient cargo vessels with slow steaming, I get a credit for that portion of the supply chain. If I come through the Port of Seattle, a green port, through the SSA terminal, a green terminal, I can get credit from the port and from the terminal. If I use the BNSF's green locomotives, I get more credit from the railroad component, but when I get to Chicago and I truck the cargo to Indianapolis, that portion may be a debit to the supply chain However, the overall supply chain may have a total credit and thus be "good". What I do with those credits is up to me as a shipper, but the point is the entire supply chain may be green, whereas the different components may not be.
What's the status of the cap and trade? House passed it, Senate hasn't. There have been several amendments to it, but the current guess is that it's not going anywhere this year. It does not match the EU policy which is very much trying to get to the systematic supply chain approach. So what are the proposed components in all of these different bills and legislations? They all have all sorts of different targets and strategies, of which, none of them are the same. They are all saying the states and large MPOs must demonstrate progress, without any kind of guidance. There are different methodologies without standardized models, without uniform data collection criteria and without definitions of the metrics or goals. USDOT is not certifying the state or MPO plans, and everybody is looking for USDOT to establish requirements in the performance measures in terms of how those goals and requirements are met and what happens if they are not met.
So the bottom line is we have some issues. Planning is impacted by the state and federal policies and that affects the DOTs, MPOs, the shippers, the carriers and we as consumers. We need the ability to predict the effect on the supply chain using current data and policies and the inter-relationships between the two as legislation can change the relationship at any time.
There is a lot happening out there. We need a federal freight strategy that makes data collection, modeling and analysis and the resulting legislation uniform. There is 33 states with state climate plans to date. Unfortunately they are focused on major sectors like electric production that is "point" sourced. They are based on wildly changing targets; they have been conducted on literally, shoe string budgets, with a limited time frame with a lot of cookbook approach by the authors. In most cases, carriers and shippers have been excluded up to this point in time, so a major decision criteria as to locating a new distribution or manufacturing facility will have an impact on these plans and that's not being looked at in the current time.
I wanted to bring up quickly what Canada is doing. Canada has developed a national strategy called the Asia/Pacific Gateway Strategy, and on the East Coast they have an Atlantic Gateway Strategy. From the vision statement: "a framework for policies, investments and initiatives that seek to make Canada the most competitive exit and entry point in North America." There is a recent article in the Seattle Times written by Washington State Department of Transportation's Secretary Paula Hammond and John Wolf, the executive director of the Port of Tacoma, which basically said we can't compete. We in the Northwest cannot compete with Prince Rupert and the Port of Vancouver, BC because Canada is using this national strategy to direct funding and political action towards improvement of their system. Everything that happens in Canada is required to incorporate the policies, investments and initiatives that make Canadian supply chains stronger. If that continues, Port Tacoma, Port of Seattle, and all the West Coast ports will feel an impact. The bottom line: freight pays our bills. If everybody would take a close at the label on your clothing, it's not made in the United States. Consumerism is rampant; we have to build up the economy. Thank you, Lee for buying more than a pair of shoes at one trip to the store, but we need to realize freight is a significant economic driver in a region, a state and a national level.
Manufacturers, shippers, distributors are changing sourcing criteria, that sourcing makes the supply chains very dynamic. Everybody wants to green the supply chain. The shipper must realize a direct economic and operational benefit, must be rewarded, hence why I am looking at and proposing the cap and trade that keeps the supply chain in interest. The bottom line is we absolutely need some sort of standardized freight policy that addresses the greenhouse gas emissions, and creates standards for that. So with that, Jennifer, I will turn it back over to you.
Thank you, Mike, we are now going to turn it over to our final presenter, Diego Klabjan of Northwestern University.
I am mostly focusing on carbon footprint accounting in logistics and the actual allocation of the carbon footprint. In the last year or so, I spoke with many shippers and carriers, and my main interest was essentially in trying to learn what today's status in the United States is when it comes to footprint accounting in logistics, or more broadly in supply chain management. Here is the good and the bad. First, why do shippers or companies care about carbon footprint accounting? Some do it for the sake of having green image, but in most of the companies green image doesn't add a lot of value. Most firms look at economic benefits. If you know your carbon footprint, then, you can measure it, which means you can manage it. If you don't know your carbon footprint, you don't know its magnitude and thus why bother with it. Many companies actually use innovative approaches to reduce carbon footprint as well as costs. Some of the companies will be doing it or already are doing it for the sake of potential future mandates. Not so much, now, because there is so much uncertainty about government policies, but they are doing it mostly because of fear of a mandate from big guys. Wal-Mart announced that in 2015 they want to start putting eco-labels on goods they sell. In the U.K., Tesco, a grocery chain, for example, is already experimenting with some of their products to put eco-friendly labels and customers can compare various products by their eco images.
About a year ago a lot of the logistics service providers didn't have many requests from customers, in this case shippers, with questions about carbon footprint. So how much is my carbon footprint was a rare question. But, in the last year I have heard from a couple of logistics service providers that that has changed. In other words, they are getting many more requests. From a handful of carbon footprint requests about a year ago, to today where they have more than 100 such requests. Another service provider pushed it to the limit in a sense that they are actually providing carbon footprint for every single shipper they handle or manage.
Now, the good side of the story, it is definitely increasing, from a handful of requests to over 100 requests; on the other hand, there are still plenty of operators that do not provide such a service, meaning that they do not provide carbon footprint of their shippers. Some are saying: Well, we don't get too many requests, and thus we are not going to lose our competitive advantage. In a few years this might be the case, but now they don't see such a competitive advantage. Many shippers are not willing to trade costs for "eco-image." If a carrier is more eco-friendly, but more expensive, most of the clients will go for the cheaper carrier. There is really no surprise there. But it is the case that many shippers, costs being equal, when they evaluate two carriers, for example, they will actually look at green initiatives of the two carriers and then will take that into account when they make the final decision.
The situation is different in European Union because of the regulations that require to trade off cost and emissions. An example that I want to bring up here is Proctor & Gamble, where in Western Europe to lower emissions they are switching from trucking to rail. By no means all of their transportation or logistical services are in the process of being switched to rail, but the portion of rail of all their shipments used to be 10% and they want to push that to 30%. The main reason is reducing their carbon footprint. Another awesome initiative in my opinion is in Brazil where instead of shipping grains from the Amazon basin down with trucks to ports in the South of Brazil, they now actually use ships on the Amazon River and from the Amazon River ship directly to the US. They do have a 40% longer lead time, essentially by moving from trucks to vessels on the Amazon River, but they concluded they lowered their emissions by 60%. That's clearly a trade off area.
Both Lee and Mike mentioned SmartWay on a few occasions. I am not affiliated at all with them, but I am interacting with SmartWay, and had several productive discussions. Let me briefly say a little more about SmartWay, for those not aware of what SmartWay is. SmartWay is a program within EPA that is supposed to bring together truck companies and shippers and help them in reducing their emissions in transportation. The participation is free, any company can join. Trucking companies who join receive SmartWay certification, essentially committing to improve fuel efficiency and reduce emissions. Shippers that are part of SmartWay commit to use SmartWay trucking partners, in other words, SmartWay certified carriers, but this by no means implies that all of their shipments must be with SmartWay certified carriers, just a certain portion of shipments. SmartWay helps them improve freight operations in order to eventually reduce emissions.
SmartWay has a tool called the FLEET model, Freight Logistics Environmental and Energy Tracking performance model, where shippers, for example, enter all of their shipments within the last year and carriers they use, and the tool calculates the NOx, CO2 and particulate matter contributions. Carriers use this tool mostly to get a sense of how their potential strategy, such as changing fleet composition, would affect the carbon footprint of the particular carrier. Shippers, likewise, use the tool to get their carbon footprint from logistics operations. This was just a very quick summary of SmartWay with a focus on FLEET.
When I talked to the shippers and carriers about carbon footprint accounting and logistics, it was clear that there are many, many challenges. Some of them are what I call the traditional old-fashioned challenges when it comes to data. You need data but there are issues collecting the data like transparency, quality of data, and all the standard data-related issues. A much bigger hurdle, at least now, are the actual processes because most of the shippers don't have the necessary processes in place. Essentially, what ends up happening is that they have to manually pick up the phone, call carriers, call their logistics service providers to get the quantity they want so they are then able to calculate carbon footprint. A minor point raised by quite a few is regarding the FLEET model. SmartWay is about to release a new version of the FLEET model and thus some are really concerned about its impact to their carbon footprint reporting. Because the FLEET model gives you a score, how "green" you are they are worried whether it will increase their score or actually the score might be reduced.
Here's a typical example that a fairly large global shipper had to go through in order to get its carbon footprint from logistics. This shipper in the US was tasked to calculate carbon footprint emissions for their operations in the US. They have many divisions; every division is using its own transportation service provider. They use many parcel carriers and a middlemen between the actual carriers and shippers. The first year, it was a very tedious task because there were no processes in place, not a single data source they could simply grab the data from. They had to make many calls within the company, many calls out of the company to put all the data in place.
Then there are standard data issues: missing data, missing weights, questionable quality. For example, if the weight is missing and you assume its zero, then you are distorting your true emissions. There is also the aggregation bias where you ship, say, on the first day of the month 200-pounds, and then a week later on a different mode you ship 50-pounds, you don't know details about the mode. You just consolidate the numbers together. There's a lot of uncertainty.
When I was trying to think about this carbon footprint accounting issues, I came up with a very fundamental issue that if you look at truck loads where you have single dedicated truck from A to B, to calculate carbon footprint of that particular move, it's very simple. If you know fuel consumption of the truck, one can calculate the carbon footprint fairly precisely. But the situation becomes more difficult if you switch to less-than-truck loads where you have one truck carrying goods from several shippers. You can calculate emissions from the entire truck, but it is more challenging to allocate emissions to various shippers. You can split by weight, volume, or any other means, but in either case you can come up with situations where you put more bias on one shipper versus another.
I also spoke with two parcel carriers, direct competitors, and asked them: "You ship small packages and parcels and somebody asks you what's the carbon footprint of this particular shipment?" For example, it went from Peoria to Fresno, California where it first went to Chicago, then to Memphis, then over to Oakland, and finally to Fresno. Every one of them is using a different way to allocate emissions. There's no real standard guidance or, say, collaboration between the two of them.
The situation when it comes to the emissions, accounting and allocation, is even more complicated if we think about less-than-truck load carriers operating on relay points where they consolidate goods and they use bigger trucks to truck the load from one point to another consolidation point. At a system level it's relatively simple to calculate emissions, but when you need to allocate to the various users of the system it becomes much more challenging. So SmartWay's perspective is really, a great and an excellent starting point, but we have to keep in mind that SmartWay's perspective is at a macro-level: looking at all shipments in one year, no details as to what capacity truck was used. It's a perfect tool for a static environment where, for example, every day you ship the same quantity, the same lane. We all know today's supply chains are not static. They are extremely dynamic, respond to demand fluctuations, lead time variations, etc. This becomes a much bigger challenge in a dynamic environment. So a more micro-level view might give a different picture of emissions in terms of allocations.
This is just a summary of the main challenges that I have identified. On the data side, it's the same old story, and then on the allocation schemas, another issue is when you have backhauls, trucks actually moving empty. How do you allocate to shippers? It becomes even more challenging if you think about intermodal freight. Say someone ships a container from Beijing to Memphis that goes through several modes of transportation. It becomes much more challenging how to allocate the actual emissions.
All this thinking about allocation then drew me to a different perspective, more on the national level, in the following sense. Mike showed the slide that presented the actual breakdown of emissions at the national level. Mike's slide is more recent than mine, but in 2008, transportation accounted for 33.1% of total U.S. emissions. Now, the question becomes, if you want to drill down to this 33.1%, how much is used by rail, by maritime, trucking, and ports. It becomes challenging if you start asking these types of questions. What's the emission contribution of intermodal yards, terminals, the contribution of drayage, for example. One can get, for example, the air emissions at a national level relatively easily, but then if you want to really slice it and dice it, start asking questions about drayage, intermodal, rail, what are the actual emission contributions at the regional level, state level, and corridor level, by a particular industry, operation, and drayage. It becomes much more challenging to actually get carbon footprint contributions when you start to slice it and dice it, asking questions on a more fine grained level.
Why are these kinds of questions important? They could assist decision-makers and policymakers into making better decisions. Mostly this kind of information will complement the typical cost decisions by providing the emission counterpart. The decision makers will not just have a complete cost picture at a corridor level, but also they would have an emission picture of the same corridor. That can help making infrastructure decisions that are not 100% driven by cost, but also taking into account the emission side of the picture.
Mike talked extensively about cap and trade. Say you want to tax emissions on a particular mode or corridor. I know that TRB initiated a study or put an RFP for a possible and the stress here is on the word possible, cap and trade for airports. What should the cap be? What's reasonable for an entire airport? I want to ramp this up by again raising the issue of, for example, parcel carriers like UPS and FedEx. There is no uniform standard as to how to allocate carbon footprint to the various users of the entire system. I hope I persuaded you that this is not that simple of a question. It is relatively easy to answer the question at a national level, if you just focus on the entire contribution. But when you try to break it down to the operations, the various modes, regions, it becomes much more intriguing. With that, thank you very much. I will be a little bit peculiar here. Feel free to contact me by e-mail, but you can also text message me. I have unlimited text messages, but only my kids text message me, nobody else. I encourage you to text message me. Thank you very much.
Thank you, Diego. I believe that's a first for contact information, text messaging. I guess it just shows where communications are heading these days. So, I will start the Question and Answer session. We have a number of questions typed in. I am going back up to the top, starting with the questions for Lee to give Diego time to digest the questions that came in for him.
The first question: you added another ship, 12 to 13 ships, what is the cost of a new vessel and the payback period for the fuel savings?
I didn't see that when I reviewed them. Typically for a new vessel, you are talking about $150 million - it varies depending on size and intended trade for the vessel. In terms of payback, I don't know how to answer the question there. I will be happy to discuss that with that person offline.
Okay. The cruise Ship industry has constructed vessels such as the Queen Mary 2 and the Oasis. How about the container vessels, can they be constructed to the super size?
About three years ago we launched a class of eight vessels; the first was the Emma Maersk. We quote vessel size in terms of the number of containers you can put onboard. For example, the largest vessel that can go through the current Panama Canal can carry about 4500 of those 20-foot containers. The Emma Maersk can carry three times that, or close to 15,000 20-foot containers. It is powered by large low-speed diesel 110,000 horsepower engines; some of these are real behemoths.
The next question for you is: wouldn't a reduction in black carbon also reduce greenhouse gasses?
Again, I will be glad to chat with that, person offline. Black carbon is typically reduced when we do a fuel switch. It's a more complex pollutant to deal with. Black carbon has a shading effect at high level, but once it falls to the glaciers it tends to accelerate melting. It has climate impact, but more complex than what we typically think of in terms of CO2 or methane or the other classic greenhouse gases.
Thank you. I am going to move on to questions for Mike now. If you think of additional questions for Lee, please continue to type them in. Mike the first question for you is what does BCO stand for? I know you answered that, but if you want just mention it again.
Beneficial cargo owner, and that's a government term that came about four years ago as part of the SAFE Ports Act where they, quite frankly hopefully no one from Wal-Mart is on the call, it was Wal-Mart aiming at Wal-Mart and some of big shippers who were not taking charge of their ownership of cargo until it actually arrived on their doorstep, even though they are responsible for, indirectly responsible or sometimes directly, for making sure they have cargo supply chain initiated. Real quick also, Jennifer, in terms of the question about the mega-vessels, Lee is right. Part of the issue in terms of can it be made bigger is a canal issue, but a lot of ports, in terms of capacity of ports, especially on the East Coast, will have trouble getting the bigger vessels in. The inland transportation infrastructure is not capable of handling the surge loads that those vessels came in. I cited my three-unit trains, 100 containers, excuse me 300 containers. Now, all of a sudden you are talking about trains where a mega-vessel can produce 16 trains. So you have a tremendous surge load on the terminal and the port when those big mega-vessels come, so they have reached about the highest limit of efficiency they can get right now, based on the infrastructure they have to serve. That's worldwide.
Mike makes a good point. Let me extend that to say there are sometimes geographical barriers. In New York, New Jersey you have the Bayonne Bridge which limits the size of the vessels that can get in to serve the New York, New Jersey terminals, but the biggest vessels can't get in. There was an announcement they are moving to the next step to evaluate what to do about that bridge, and the ship to shore cranes. Only some of the newer marine terminals have ship-to-shore cranes big enough to work those massive vessels. Most of them are calling on the Asia/Europe run. The biggest ones you see in the United States are around 10,000 and that would be on the West Coast.
The next question is about power for future vessels. Have ship builders looked for solar powers option?
We are constantly looking for other options right now. These large low-speed highly efficient diesel engines are the best thing out there. We are testing solar, testing alternative fuels, and as you know there's been one test, a solar sail on a small vessel. You have to have the wind in a certain direction for that to work. There are all kinds of alternative methods of propulsion being looked at. Right now for reliability, you can't beat that big diesel engine.
I saw someone ask about nuclear, too. There you run into questions about how you control the safety of the used fuels. Because remember these are international vessels, they travel the world, and are not under the control of a highly regulated and highly competent body, say like the U.S. Navy. There would be a lot of hurdles to deal with before you could consider putting nuclear into commercial vessels with, say, Panamanian flag and so forth.
Thank you. Before the next question I needed to bring up a polling question. Originally we wanted to know how you were accessing today's audio. If given the option, would you use the phone line or voice over IP? I will put that up to help us account for phone lines in the future. I will put it up for you to answer while going through the questions.
Another question, what does GHG stand for? The answer is greenhouse gases. Mike, the next question is for you. Can you provide references of your data on freight and mega-regions?
Most of that came from the TRB. There are several committees working on mega-regions from the planning perspective and fright movement perspective. I can cite the references. These were pulled out of two TRB reports which were recently published. I will get them to the person that asked.
Thank you. Diego, the next question is for you. Where do we find out more about the Canadian Freight Strategy National Goals?
That is probably for Mike.
The website for Transport Canada will have this information.
Okay. Assume P&G goal of increasing rail from 10% to 30% in Europe to reduce carbon footprint also had huge cost advantages. How much of this is transferable to US?
P&G claims they were able to make cost savings as well, but it's not clear how much they actually saved. In terms of the U.S., I think there would be cost benefits on the U.S. side as well if they do it at a large scale. In Europe it was driven actually by regulations to put a cap on carbon emissions or price on carbon. In the U.S., with no price on carbon, I think that's going to be much more challenging for P&G to get cost benefits in switching modes. Railways are much more emission-friendly than trucks, so clearly there is the emission advantage and cost decreases. It boils down to the lead time because shipping by rail has longer lead times. If we look at the example down in Brazil by P&G, the price they had to pay was increased lead time. That can be absorbed by today's supply chains since the most efficient supply chains are agile and adaptable. This new lead time has to be eaten up in some other parts of your supply chain. They could switch to rail in the U.S. I don't see a reason why not. I cannot comment about the actual cost numbers because those are proprietary and they are not sharing these numbers.
What are the U.S.'s goals in developing the infrastructure on both coasts after 2014 such as more terminals, contracts with ocean carriers, etc.?
That is probably more for Lee and Mike as well.
Yeah, MARAD is currently looking at the role the Federal Government should be playing in developing port infrastructure and inland infrastructure in terms of rail and roads based upon the anticipated opening of the canal and the anticipated benefits to individual areas and regions from increased traffic. If you listen to the America Association of Port Authorities, virtually all ports have claimed that they will be a direct beneficiary of that cargo. Obviously that's not true, so the market will play a significant role in determining where that goes. First of all, the Heartland Corridor, the Crescent Corridor and the ones we just talked about in my presentation, are all aspects of the railroads gearing up to move additional cargo. Most of the port facilities have announced plans. The Southeast ports and the Gulf Coast ports have announced dredge depth changes, new terminals, and regional infrastructure improvements to handle cargo. People are gearing up for it, but the problem is not everybody will win on that one.
Okay. Next question is: did I see ports are a large percentage of emissions. Does that counteract the maritime savings?
I saw that. The problem is ports, when you classify ports there's a lot of things thrown into that. Sometimes the drayage from a marine terminal to inland intermodal may be across the street or in Los Angeles' case seven miles away, it may be on-dock. Part of it is the harbor tugs, bunker fuels that are delivered, emissions for vessels that don't switch over to the auxiliary power and continue to use their main engine fuel to power the vessel at berth, versus cold ironing. It's a compilation of, literally, a hundred different sources that go into a "port." I know that a lot of ports are greening their terminals, and looking at electric cranes, electric hustlers, storage equipment, and greening other areas. In a global supply chain, there's no one measurement for a port. You have to look at the entire supply chain to break down the components.
Speaking from the perspective of the vessel operators and we have marine terminals and truck and warehouses. These proprietary tools actually break down the pieces so you have one emissions factor and distance for the ocean leg, then you have an emissions factor for the marine terminal. Then you have emissions factor for the truck. Then, if you look at the port's inventories, most ports have inventories posted on the website; you see there is definitely a contribution due to things like the harbor tugs and so forth. You have to actually know the contribution at that particular port to be able to do a good analysis.
Thank you, both.
I should also say a vessel coming all the way across the Pacific from Hong Kong will have much larger total emission than any amount of cargo handling in, say, Los Angeles. The difference of course in Los Angeles or any port is people are there to breathe it.
Okay. The next question is for Diego. Did your presentation imply an important weakness in the effectiveness of cap and trade since systemic assignment is essential to reducing GHG but hard to allocate?
That is definitely the case. Even though, if you look at all of the versions of cap and trade that were bounced around in Congress, that was not an issue because they were all imposing a cap at a much higher level, e.g. a cap on utilities, on cement producers, etc. The level of emissions is well known, but definitely it becomes much more challenging if you go down at a lower level. I have already mentioned TRB's interest or study into putting a cap on airport emissions. Do we know what the actual emissions of an airport are? The in-bound aircraft, for example, does that count towards the emission of an airport or not? Any version of cap and trade to be passed at a Federal level probably will not have this issue. But later, as cap and trade evolves, definitely allocations of carbon footprint will become an issue, or will become a challenge. Perhaps a bigger issue with cap and trade is how you actually allocate initial permits, auction them out or give them for free. That was one of the debates in the Congress that was fairly high up on the table.
I will ask one more question. I know are still a few questions in there and I will send them out to the presenters. When I send the follow-up information with the recording, I will include the written responses from the remaining questions. The one last question is for Diego. The complexities of detailed supply chain carbon accounting seem daunting in the near term. This is a new but necessary effort for business and industry. Is it useful to have macro-level analyses as a starting point, and then refine methods as better data becomes available?
I do give full credit for SmartWay for coming up with the micro-level perspective. There is no question that it is the right tool for the right time, and it is definitely the right time for a tool like FLEET. But, the FLEET model has been around for quite a while and I think it is time to start thinking and exploring the accounting at a more micro-level. I mentioned the study of that company who was aware there's a lot of aggregation going on. Consider consumer goods. When the level is reached, like the example in the U.K. where you can compare carbon footprints by labels based on the total lifecycle carbon footprint with a large portion coming from transportation, companies will be concerned about every single ton of CO2 they emit. They will worry that aggregation could be improved, or, in other words, might be a disadvantage today. Again, the FLEET model, unquestionably the right model. It has been in place for quite a few years and probably will be used for many more years.
Thank you. I will get the remaining questions to the presenters and include that in the follow-up information, but we are out of time for today. I want to thank all three presenters for three great presentations. Thank you everybody in attendance, and thank you for bearing with some of the audio issues. As I said, we will have all the audio back up and running correctly next month. Unfortunately, this was the guinea pig session. The recorded version from today will be available online within the next few weeks I will send an e-mail when it becomes available. I encourage everybody to fill out the evaluation form up there and send it back to me.
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